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Updated 19:12 07/08/20

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Strong Sterling squeezes gold price


Michael Pinson, News Editor
5 Dec 2019, 11:36 a.m.

Pound Sterling has climbed to a seven-month high against the US Dollar this week, as markets become more confident of a Conservative victory in the upcoming General Election. The Pound is now at its highest since May 2019, hitting a high of $1.314 this morning – a gain of 2.29% in just a week.

Against the Euro, Sterling has performed even better, reaching a 31-month high. This puts it back at the level of 2017, when Theresa May made the ill-fated decision to hold a snap election, reducing her majority and causing the Brexit deadlock that has plagued Parliament for the past two years.

With just a week to go until the General Election on December 12th, polling figures show a Conservative majority to be the likely outcome. This has traders happy that the unending Brexit saga could be resolved, and the Pound has gained 3 cents in as many days. Despite the Conservatives promise to ‘get Brexit done’, and multiple reports suggesting the deal negotiated by Boris Johnson will result in lower GDP for the UK, a Conservative win is still the preferred election outcome for traders.

A Labour victory will see Brexit delayed further, with the party confirming that any deal it negotiates will only be passed after a second referendum. Labour have also launched a ‘very ambitious’ manifesto, that would see business and high-earners hit with increased tax. Renationalisation of a huge number of utilities would also upend the system. Financial markets fear the significant shake-up that a Labour victory would potentially bring, so the more likely a Conservative majority looks, the higher the pound will climb.

If the polls prove to be accurate (something they failed at in 2017), and Boris Johnson wins a majority, then analysts expect the Pound to climb toward $1.35. If Labour surprise the polls and overthrow the Conservatives, then the Pound is expected to fall back towards $1.25.
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The gold price for the past week, showing high volatility due to Dollar and Sterling movement.

The result in the past 24 hours was a drop in the gold price for Sterling, losing £10 per ounce yesterday. The gold price has been volatile recently; moving up and down with each new statement on the US-China trade war building and dashing hopes in equal measures. The increase in Sterling however has reduced any potential gains for gold from the Dollar movement.

In seven days’, time the votes will be cast and, barring a hung parliament, the Parliamentary deadlock broken. Sterling will almost certainly be affected by the result, and so we expect to see movement in the gold price next week, but the direction and severity of the movement remains to be seen.

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